WAGE THEFT SERIES | PART 2: YOUR CORPORATE CULTURE AND WAGE THEFT

In Part 1 of this series, we summarised the new wage theft laws and explained how they fit into the existing legal framework relating to wage compliance.

In this Insight, we will discuss how your corporate culture could make or break a defence to a wage theft claim.

The Intention Element

As explained previously, wage theft will arise where an employer intentionally engages in conduct that results in their failure to pay an amount due to an employee.

Given that wage theft will constitute a criminal offence, the Criminal Code Act 1995 (Cth) (“Criminal Code”) comes into play and sets out what will be required to demonstrate intention on the part of an employer.

The Criminal Code confirms that intention is established where a body corporate expressly, tacitly or impliedly authorises or permits an offence. Specifically, such authorisation or permission will be established where:

• a board of directors or high managerial agent intentionally, knowingly or recklessly carries out the relevant conduct, or expressly, tacitly or impliedly authorises or permits the commission of the offence;

• a corporate culture existed that directed, encouraged, tolerated or led to non-compliance; or

• the employer failed to create and maintain a corporate culture that required compliance.

Boards and High Managerial Agents

While board members and other individuals involved in underpayments were already exposed to potential personal liability under section 550 of the Fair Work Act 2009 (Cth), as discussed in Part 1 of this series, the conduct of boards and high managerial agents is now a specific focus of the new wage theft laws.

The Criminal Code defines a “board of directors” as the body (by whatever name called) exercising the executive authority of a body corporate.

“High managerial agents” are employees, agents or officers of a body corporate “with duties of such responsibility that his or her conduct may fairly be assumed to represent the body corporate’s policy.”

In cases involving senior managers and key-decision makers in payroll and HR departments, we expect that it will be easier for Courts to associate their conduct with that of the employer.

In other cases, it will be a question of fact as to whether an individual is a “high managerial agent” and therefore whether their conduct should be taken into account to establish if there was intent on the employer’s part to withhold monies due to an employee. This will involve an analysis of an individual’s duties and delegations.

What Contributes to an Employer’s “Corporate Culture”?

While it will likely be more straightforward to gather evidence of the actions (or inaction) of directors and high managerial agents in relation to a wage theft claim, evidence of the “corporate culture” within an organisation is a less tangible concept.

The Criminal Code defines corporate culture to mean “an attitude, policy, rule, course of conduct or practice existing within a body corporate”.

In the Financial Services Royal Commission, Commissioner Hayne described corporate culture as “what people do when no one is watching”.

In ASIC v AMP Financial Planning Pty Ltd (No 2) [2020] FCA 69, Justice Lee emphasised that:

… whatever it [corporate culture] actually means, it must transcend simply putting in place expensive “systems”; or it must be more than persons, whose titles include terms such as “governance” and “compliance”, declaiming platitudes.

Tying these approaches together, it is clear that employers not only need to be able to point to the policies, procedures, personnel and structures they have in place to demonstrate their commitment to wage compliance – employers must also show that these measures are appropriately implemented and continuously reviewed in practice.

Further, separate to evidence of what conduct was directed or encouraged by an employer, the concept of what conduct was “tolerated” within an organisation is a noteworthy feature of the Criminal Code’s approach to intention.

That is, how an employer responds to wage discrepancies and enquiries, as well as its general support and resourcing of its payroll function, will also be relevant to whether a corporate culture of compliance or non-compliance existed.

Not only would a finding that a corporate culture of non-compliance existed give rise to real risk of wage theft – it could also be highly damaging to an employer’s internal and external brand reputation.

Key Take Aways

A wage theft prosecution under the new laws will involve analysis not only of an employer’s policies, practices and procedures, but also the conduct of its board and high managerial agents.

While many organisations will already have very strong payroll compliance programs in place, the onset of new wage theft laws should encourage all businesses to take this critical aspect of their operations very seriously.

In Part 3, we will provide our tips as to what you can start doing now to demonstrate a strong corporate culture within your organisation towards wage compliance, as well as ensuring that your board members and high managerial agents are ready to meet their obligations.

Cowell Clarke is pleased to offer its RemCheck service to organisations that wish to obtain peace of mind by confirming their payroll compliance. Our Employment & Workplace Relations Team can also provide advice should you have any queries or concerns. Contact Cassie Burfoot, Director, or Emily Gray, Senior Associate, for further information.